Cisco Systems Announces Plan to Cut 6,500

Networking giant Cisco Systems just put some numbers behind its widely-expected restructuring plan, and the number of cuts is higher than some analysts had predicted but lower than some published reports had suggested.

The number of jobs cut will be 6,500, of which 2,100 are leaving via the voluntary retirement program. The company also says it plans to eliminate about 15 percent of executives at the vice president level and above. The reduction amounts to about 9 percent of Cisco’s total work force.

Cisco will take a one-time $1.3 billion charge to cover the costs of the restructuring, of which $750 million will be recognized during Q4.

On top of the outright job cuts, Cisco says it has agreed to sell a set-top box manufacturing facility in Juarez, Mexico, to Foxconn Technology, the Taiwanese contract manufacturing giant. The sale will include the transfer of about 5,000 employees from Cisco’s payroll to Foxconn’s, effective the first quarter of Cisco’s fiscal year 2012.

The combined number of jobs leaving Cisco’s payroll through retirement, transfer to Foxconn or outright firing is 11,500. That number amounts to about 14 percent of Cisco’s total headcount of 78,000 and change. If the plan that CEO John Chambers announced during the company’s most recent earnings conference call holds true to the plan and Cisco cuts $1 billion from its annual operating costs, then the average savings works out to about $87,000 per job.

Workforce Reduction of Approximately 6,500 Employees
As part of the company’s $1 billion annual operating expense reduction, Cisco will reduce its global workforce across all functions by approximately 6,500 employees, which includes approximately 2,100 employees who elected to participate in a voluntary early retirement program. This also includes a reduction totaling approximately 15 percent of vice president level and above employees. This represents a reduction of approximately 9 percent of Cisco’s regular full-time workforce. All affected employees will receive severance pay and outplacement assistance.

Impacted employees in the United States, Canada and select countries will be notified during the first week of August. The remainder of the global workforce reductions are expected to occur at a later date in compliance with local laws and regulations.

In connection with this plan, Cisco estimates that it will recognize total pre-tax restructuring charges to its GAAP financial results in an amount not expected to exceed $1.3 billion over several quarters, consisting of severance and other one-time termination benefits. Substantially all of these charges are cash-based. Cisco expects that approximately $750 million of these charges will be recognized during the fourth quarter of fiscal 2011, including approximately $500 million relating to the voluntary early retirement program. The remaining balance of the charges is expected to be recognized during fiscal 2012.

In connection with Cisco’s continued implementation of its comprehensive action plan to simplify the organization, refine operations, and reduce annual operating expenses, it is anticipated that Cisco will recognize other restructuring charges to its GAAP financial results. These additional charges will be disclosed in earnings conference calls and in Securities and Exchange Commission filings.

Manufacturing Facility Sale to Include Transfer of Approximately 5,000 Employees
Cisco also announced earlier today an agreement for sale of its set-top box manufacturing facility in Juarez, Mexico, to Foxconn Technology Group. The approximately 5,000 people employed at the facility will become employees of Foxconn in the first quarter of fiscal 2012 and no job losses are expected as a result of the sale. This figure is in addition to the approximately 6,500 employees impacted by the reduction in workforce and the voluntary early retirement program. While this action is expected to create improvements to Cisco’s long term cost structure, the strategic intent for this action is to simplify business operations. The labor cost associated with these employees has been categorized as manufacturing costs.

Forward-Looking Statements
This press release may be deemed to contain forward-looking statements, which are subject to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995, including statements regarding the timing of reduction in force, the amount of related charges, Cisco’s planned annual operating expense reduction and Cisco’s sale of its set-top box manufacturing facility. Readers are cautioned that these forward-looking statements are only predictions and may differ materially from actual future events or results due to a variety of factors, including: Cisco’s ability to implement the workforce reductions in various geographies; possible changes in the size and components of the expected costs and charges associated with the plan; risks associated with Cisco’s ability to achieve planned reductions; and Cisco’s ability to execute the sale of its set-top box manufacturing facility. For information regarding other factors that could cause Cisco’s results to vary from expectations, please see the “Risk Factors” section of Cisco’s filings with the Securities and Exchange Commission, including its most recent quarterly report on Form 10-Q. Cisco undertakes no obligation to revise or update publicly any forward-looking statements.

About Cisco
Cisco (NASDAQ:CSCO – News) is the worldwide leader in networking that transforms how people connect, communicate and collaborate. Information about Cisco can be found at http://www.cisco.com. For ongoing news, please go to http://newsroom.cisco.com.

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